It is therefore important to make it clear in the contract whether it is going to be an agency agreement or a distribution agreement.

A distributor take title to the goods supplied by the supplier and resells them either to a retailer or another wholesale or the final consumer. In effect a distributor is an independent contractor. What he does not create a contractual relationship between the third party customer and supplier.

By contrast an agency occurs where one party (the agent) has authority from another party (the principal) to create a legal relationship between the principal and a third party.

The types of Distribution Agreements

There are a number of forms of distribution agreements:

Exclusive distribution where the manufacturer/supplier is precluded from selling the goods direct to the territory or the customer group.

Non exclusive distribution where the manufacturer/suppler can sell directly and appoint further distributors within the territory.

Selective distribution where a network distribution system is established through outlets and meets certain minimum requirements.